Europe Resists U.S. Push to Curb Iran Ties

By STEVEN R. WEISMAN

New York Times

January 30, 2007

WASHINGTON, Jan. 29 — European governments are resisting Bush administration demands that they curtail support for exports to Iran and that they block transactions and freeze assets of some Iranian companies, officials on both sides say. The resistance threatens to open a new rift between Europe and the United States over Iran.

Administration officials say a new American drive to reduce exports to Iran and cut off its financial transactions is intended to further isolate Iran commercially amid the first signs that global pressure has hurt Iran’s oil production and its economy. There are also reports of rising political dissent in Iran.

In December, Iran’s refusal to give up its nuclear program led the United Nations Security Council to impose economic sanctions. Iran’s rebuff is based on its contention that its nuclear program is civilian in nature, while the United States and other countries believe Iran plans to make weapons.

At issue now is how the resolution is to be carried out, with Europeans resisting American appeals for quick action, citing technical and political problems related to the heavy European economic ties to Iran and its oil industry.

“We are telling the Europeans that they need to go way beyond what they’ve done to maximize pressure on Iran,” said a senior administration official. “The European response on the economic side has been pretty weak.” The American demands and European responses were provided by 10 different officials, including both supporters and critics of the American approach.

One irony of the latest pressure, European and American officials say, is that on their own, many European banks have begun to cut back their transactions with Iran, partly because of a Treasury Department ban on using dollars in deals involving two leading Iranian banks.

American pressure on European governments, as opposed to banks, has been less successful, administration and European officials say.

The main targets are Italy, Germany, France, Spain, Austria, the Netherlands, Sweden and Britain, all with extensive business dealings with Iran, particularly in energy. Administration officials say, however, that Chancellor Angela Merkel of Germany, the current head of the European Union, has been responsive.

Europe has more commercial and economic ties with Iran than does the United States, which severed relations with Iran after the revolution and seizure of hostages in 1979.

The administration says that European governments provided $18 billion in government loan guarantees for Iran in 2005. The numbers have gone down in the last year, but not by much, American and European officials say.

American officials say that European governments may have facilitated illicit business and that European governments must do more to stop such transactions. Treasury Secretary Henry M. Paulson Jr. has said the United States has shared with Europeans the names of at least 30 front companies involved in terrorism or weapons programs.

“They’ve told us they don’t have the tools,” said a senior American official. “Our answer is: get them.”

“We want to squeeze the Iranians,” said a European official. “But there are varying degrees of political will in Europe about turning the thumbscrews. It’s not straightforward for the European Union to do what the United States wants.”

Another European official said: “We are going to be very cautious about what the Treasury Department wants us to do. We can see that banks are slowing their business with Iran. But because there are huge European business interests involved, we have to be very careful.”

European officials argue that beyond the political and business interests in Europe are legal problems, because European governments lack the tools used by the Treasury Department under various American statutes to freeze assets or block transactions based on secret intelligence information.

A week ago, on Jan. 22, European foreign ministers met in Brussels and adopted a measure that might lead to laws similar to the economic sanctions, laws and presidential directives used in the United States, various officials say. But it is not clear how far those laws will reach once they are adopted.

The American effort to press Iran economically is of a piece with its other forms of pressure on Iran, including the arrest of Iranian operatives in Iraq and sending American naval vessels to the Persian Gulf.

American officials refuse to rule out military action. On Monday, President Bush said in an interview with National Public Radio that the United States would “respond firmly” if Iran engages in violence in Iraq, but that he did not mean “that we’re going to invade Iran.”

Several European officials said in interviews that they believe that the United States and Saudi Arabia have an unwritten deal to keep oil production up, and prices down, to further squeeze Iran, which is dependent on oil for its economic solvency. No official has confirmed that such a deal exists.

The Bush administration has called on Europe to do more economically as part of a two-year-old trans-Atlantic agreement in which the United States agreed to support European efforts to negotiate a resolution of the crisis over Iran’s nuclear program.

Typically, American officials say, European companies that do business with Iran get loans from European banks and then get European government guarantees for the loans on the ground that such transactions are risky in nature.

According to a document used in the discussions between Europe and the United States, which cites the International Union of Credit and Investment Insurers, the largest providers of such credits in Europe in 2005 were Italy, at $6.2 billion; Germany, at $5.4 billion; France, at $1.4 billion; and Spain and Austria, at $1 billion each.

In addition to buying oil from Iran, European countries export machinery, industrial equipment and commodities, which they say have no military application. Europeans also say that courts have overturned past efforts to stop business dealings based on secret information.

At least five Iranian banks have branches in Europe that have engaged in transactions with European banks, American and European officials say.

The five include Bank Saderat, cited last year by the United States as being involved in financing terrorism by Hezbollah and others, and Bank Sepah, cited this month as involved in ballistic missile programs.

A directory of the American Bankers Association lists Bank Sepah as having $10 billion in assets and equity of $1 billion in 2004. It has branches in Frankfurt, Paris, London and Rome. The United States Embassy in Rome has called it the preferred bank of Iran’s ballistic missile program, with a record of transactions involving Italian and other banks.

Bank Saderat had assets of $18 billion and equity of $1 billion in 2004, according to the American Bankers directory. Three other Iranian banks — Bank Mellat, Bank Melli and Bank Tejarat — have not been cited as involved in any illicit activities, but many European officials say they expect the Treasury Department to move against them eventually.

European officials say that the European Commission will meet in mid-February and approve a measure paving the way for freezing assets and blocking bank transactions for the 10 Iranian companies and 12 individuals cited in an appendix of Security Council Resolution 1737, adopted in December.